I’ve said for many years Kiwi’s love being self-employed, and we seem to switch between employed and self-employed a lot. Some succeed, some have a change of direction, some it’s about a change of situation. The point is, change is inevitable.
What will surprise you; typically, there are over 45,000 start-up businesses each year in New Zealand. Anecdotal evidence also suggests that a large number of these businesses are registered with the Companies Office early in the new year. Unfortunately, a lot of these businesses will simply fail due to cash-flow constraints. Some will be because the business isn’t sustainable, but the more likely reason is someone got injured or was prevented from working due to a disability.
According to ACC research (June 2009), a whopping 67% of these failures had injury or illness as a significant contributory factor. This hides behind the generally optimistic and she'll be right attitude of kiwi business owners. Frankly, we do not consider the risks well.
What this says is the insurers stance to restrict product access and terms to insure people in a start up business situations, is well founded and not just because they want to pick on a segment.
Just to be clear, when I'm talking about insurance for start up businesses, I'm talking about those that have been trading for less than 3 years and don't have 3 years of financial accounts available.
This segment of self-employment has the greatest risk when something adverse happens, you don't have the evidence to prove a loss to get the financial support you really need. Because you're in the start up phase, costs are high, profits are low and it's likely you've taken a pay cut to get the business running.
This is the risk.
The risk that if something serious happens your whole financial future is put in doubt, potentially even losing not only your business but your home and lifestyle too. The risk of a failure is extremely high.
Let me be really blunt, you'll insure your tools, with about a 5% chance of loss or claim, and vehicles, with about a 27% chance of loss or claim, but you'll avoid talking about disability, through injury or illness, which makes up 67% of the business failure risk you have.
In some dictionaries, this is defined under crazy and by the company’s office as reckless trading.
With the increase in director liability and a focus on business governance, companies with staff that fail, because of the disability of key staff without adequate insurance cover, will come under the spot light.
Owners and directors, can expect the appropriate authorities to start taking action in this area, because of the level of harm created by the lack of insurance. This harm is social harm in the form of social benefit requirements, bank defaults, mortgagee sales etc.
From a wider business insurance perspective, 78% of businesses underinsured fail following a major claim. An estimated 65% of small businesses have no business insurance at all. 47% do not regularly review their business insurance to ensure it’s still relevant and appropriate.
On the larger stage, an estimated 13% of med-large business have no business insurance.
These are scary numbers when you consider how many small businesses are both dependant on bigger businesses and also inter dependent on each other.
Insuring yourself to ensure you don’t face any of this is both relatively straight forward and relatively painless, yes there is a cost to it. On balance that cost is relatively minor in the scheme of things.
In terms of your operating budget, very small to ensure you, your family and your staff have the piece of mind that the business that supports their lifestyles will continue to do so, regardless of the financial impact of adverse events.
We can access up to $9,000 per month of cover without the need for financial accounts, this makes these products key for you right now in the early stages of your business.
How would your business cope with your disability? How would your business cope with your supplier(s) being disabled?
Get it sorted!
Either situation give us a call and we can help mitigate these issues in an effective way for you.
(sources: ACC & Statistics NZ & General Claims experience)